Tony Abbott raises tax cut prospects amid budget questions

Prime Minister Tony Abbott continues to defend his first budget and has raised the prospect of tax cuts while students protest education funding and questions are asked about changes to the GST.

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SARAH FERGUSON, PRESENTER: The Government's tough Budget sell is into its second week, but it's facing growing opposition to a number of its measures and proposed cuts.

There were violent student protests across the country today in response to the Budget's proposed changes to university fees.

The Prime Minister has dangled the prospect of tax cuts in the next term of government, but persistent questions remain about whether changes to the GST are inevitable.

And the Prime Minister raised some eyebrows today when he winked during a radio program when a 67-year-old grandmother called in and admitted times were so tough for her, she'd had to resort to working for a phone sex line.

Political correspondent Sabra Lane reports.

SABRA LANE, REPORTER: The Prime Minister's Budget roadshow dropped into Melbourne today, with Mr Abbott conducting radio talkback. During a session with the ABC's Jon Faine, Gloria from Warburton phoned in to explain how tough life is right now.

GLORIA, TALKBACK CALLER (on ABC Radio, 774 Melbourne): I just survive on around $400 a fortnight after I pay my rent. And I work on an adult sex line to make ends meet.

SABRA LANE: The Prime Minister's office says the wink was to reassure Jon Faine he was happy to take the call.

Mr Abbott took a series of tough questions about the Budget.

TONY ABBOTT: You see, we had a fire and the Budget is the fire brigade. And sure, sometimes the fire brigade knocks over a few fences in order to put out the fire, but if you've got a fire, you've got to put it out.

SABRA LANE: And the gain for all this pain?: not just budget repair, but the twinkling allure of personal income tax cuts.

TONY ABBOTT: I would like to be in a position to offer tax cuts in our next term. At the moment, I'm certainly not guaranteeing that or promising it. But the whole point of getting the budget under control now, Neil, is so that we can give tax cuts in the not-too-distant future.

SABRA LANE: But first comes the much broader discussion about tax and whether to lift the GST or broaden its base. The Prime Minister says it's not on his agenda.

SABRA LANE: But plans do change and the Government's decision to cut $80 billion in funding to the states for hospitals and schools during the next decade guarantees there will be a wide-ranging debate about changing the GST as one possible way to makeup that funding shortfall. The Government has promised a white paper on taxation reform this term, with any changes taken to the next election.

NEIL WARREN, AUST. SCHOOL OF BUSINESS, UNSW: The OECD average - so, the comparable countries to Australia - it's 18.9 per cent at the present moment. So ours is about half of the OECD average. It's quite low.

SABRA LANE: It's easy to see why some are pushing for the debate. The GST is currently 10 per cent. Lifting it to 12.5 per cent would raise an extra $13 billion a year. Extending the GST to include food would ring up another $6 billion. Applying it to education adds nearly $4 billion, and health, $3.4 billion.

NEIL WARREN: As an economist, food should be in and we should directly compensate, because if you look at the present situation, food being out's worth $6.2 billion. Now who are the beneficiaries of that $6.2 billion? Well, the people who you should really compensate, it's probably going to cost you $1.5 to $2 billion of that $6.2 billion.

CASSANDRA GOLDIE, AUST. COUNCIL OF SOCIAL SERVICE: When we get to the table to talk about tax reform, and the GST is on the table as part of that discussion, we'll be saying we will oppose putting anything on fresh food.

SABRA LANE: Cassandra Goldie from the Council of Social Service is prepared to discuss the GST, but as long as other measures like negative gearing and family trusts are on the table. But she's wary of any GST compensation package.

CASSANDRA GOLDIE: I think we need to be very careful and sceptical about that. The risk is that the compensation package is politicised. It's happened with the carbon price compensation package - you know, probably not quite where it should have been in terms of real compensation. And the other thing is that over time, these very quickly get eroded because it's all about politics, it's about legislation.

SABRA LANE: Social justice campaigner Father Frank Brennan says fresh food, basic health and education should remain GST-exempt to protect low income families and the vulnerable.

FRANK BRENNAN, SOCIAL JUSTICE CAMPAIGNER: Do you look, for example, at increasing the rate of the tax on what you might call luxury items? Is it a time to start discriminating between those items which generally might attract a tax of 10 per cent; others might, say, attract a tax of 15 per cent. But that's also to be offset against the question about whether or not better revenue raising measures might be adopted looking, if you like, at the other end of the market, particularly things like superannuation and capital gains tax and things of that sort.

SABRA LANE: Further complications and exemptions could involve great political risk. Rewind to the pre-GST debate and the to-ing and fro-ing over cooked chicken.

PETER COSTELLO, THEN TREASURER (1999): Well what if you cook a chicken in the supermarket and then let it cool and it's bought cool for reheating at home - is that takeaway or basic?

SABRA LANE: The Government's struggling to defend the Budget now and has come under criticism from within about the pre and post-Budget sales pitch. Throw forward to the next election campaign and it's creating a monumental challenge, already lining up complex debates on a number of fronts - on tax, industrial relations, the pension, Medicare and education.

Hundreds of students protested around Australia today against the Government's plans for tertiary education cuts and increased student fees. The National Day of Action prompted the Prime Minister to cancel a visit to Deakin University due to security fears posed by a planned protest.

TONY ABBOTT: In the end, you don't give the protestors what they want, which is a riot on national television.

BILL SHORTEN, OPPOSITION LEADER: I say to these student radicals: don't let Tony Abbott's crazy cuts and broken promises and lies before the election off the hook by making yourselves the issue. Let people come and express their views in a peaceful manner and that's what Labor expects.

SABRA LANE: The Prime Minister says he'll visit the university at a later date to explain why the budget cuts were made.

Meanwhile tonight, the man whose name has become synonymous with education reform has defended his report and criticised the Government for its Budget decision to cut the growth of education spending.

DAVID GONSKI, GONSKI REVIEW CHAIRMAN: I want to put on record that I sincerely hope that in the period between now and 2017, the Federal Government will change the presently budgeted position.